Donald Trump’s trade war is an international tragedy. But it could have a happy ending if it eventually reminds us of the risks that free trade imposes on people, and if we improve our insurance mechanisms to help them.
.. on July 11, only 39% of respondents approved of US President Donald Trump’s imposition of tariffs on foreign countries, while 56% were opposed. But, while it’s good news that a majority of Americans oppose their president on this key issue, Trump is plunging ahead, apparently thinking the public will like the tariffs better when they are in place... So, why are we seeing so much public support for a US-initiated trade war now?It must stem from the job insecurity sometimes imposed by free trade, and the sense of injustice that arises when one is among the losers. Most people do not want charity. Voters in the United States responded well to “Make America Great Again.” They did not respond well to former President Barack Obama’s “spread the wealth around.”
.. programs such as Trade Adjustment Assistance in the US. Trade Adjustment Assistance allows people who can demonstrate that their jobs were lost to foreigners because of free trade to receive temporary compensation while they find a new job.
.. In my 2003 book The New Financial Order, I argued in favor of privately issued “livelihood insurance,” which protects against long-term loss of income and sets premiums on the basis of occupation and training.
.. if the government offers the coverage against risks to livelihoods from free trade, it just looks like redistribution. This is especially so because the risks of maintaining free trade with low tariffs may be long-term. Losing one’s job in the US steel industry as mills shut down in the face of foreign competition may look awfully permanent. But it is hard to imagine governments subsidizing displaced workers for decades.
.. with increased globalization an apparently permanent new condition, and with inequality within countries widening, people tend to feel that their long-term economic situation is getting riskier.
We need to find a way to insure people against the risks of the global market without in any way demeaning them.
.. When the government spends tax money on universal public education and health care, it does not strike many as redistribution, because the services are offered to everyone, and accepting them appears more patriotic than abject. As long as most people use the government schools and doctors, redistribution does not look like charity.
.. Another solution is to have the government encourage private livelihood insurance by subsidizing it to help cover the cost of jobs lost because of foreign trade. Private insurance companies, competing against each other and subject to appropriate regulations, may show much more entrepreneurial creativity in successfully managing the risks that free trade imposes on individuals.
.. Trump’s trade war is an international tragedy. But it could have a happy ending if it eventually reminds us of the risks that free trade imposes on people, and if we improve our insurance mechanisms to help them.
The Old Allure of New Money
Practically no one, outside of computer science departments, can explain how cryptocurrencies work, and that mystery creates an aura of exclusivity, gives the new money glamour, and fills devotees with revolutionary zeal. None of this is new, and, as with past monetary innovations, a seemingly compelling story may not be enough.
.. the true public justification for creating the European currency in 1992 was a kind of “groupthink,” a faith “embedded in people’s psyches” that “the mere existence of a single currency…would create the impetus for countries to come together in closer political embrace.”.. in 1932 the economist John Pease Norton, addressing the Econometric Society, proposed a dollar backed not by gold but by electricity. But while Norton’s electric dollar received substantial attention, he had no good reason for choosing electricity over other commodities to back the dollar. At a time when most households in advanced countries had only recently been electrified, and electric devices from radios to refrigerators had entered homes, electricity evoked images of the most glamorous high science...Each of these monetary innovations has been coupled with a unique technological story. But, more fundamentally, all are connected with a deep yearning for some kind of revolution in society. The cryptocurrencies are a statement of faith in a new community of entrepreneurial cosmopolitans who hold themselves above national governments, which are viewed as the drivers of a long train of inequality and war.And, as in the past, the public’s fascination with cryptocurrencies is tied to a sort of mystery, like the mystery of the value of money itself, consisting in the new money’s connection to advanced science. Practically no one, outside of computer science departments, can explain how cryptocurrencies work. That mystery creates an aura of exclusivity, gives the new money glamour, and fills devotees with revolutionary zeal. None of this is new, and, as with past monetary innovations, a compelling story may not be enough.
The Illusions Driving Up US Asset Prices
In the United States, two illusions have been important recently in financial markets. One is the carefully nurtured perception that President-elect Donald Trump is a business genius who can apply his deal-making skills to make America great again. The other is a naturally occurring illusion: the proximity of Dow 20,000.
.. the Dow had already hit nine record highs before the election, when Hillary Clinton was projected to win. In nominal terms, the Dow is up 70% from its peak in January 2000.
.. But these numbers are illusory. The US has a national policy of overall inflation. The US Federal Reserve has set an inflation “objective” of 2% in terms of the personal consumption expenditure deflator. This means that all prices should tend to go up by about 2% per year, or 22% per decade.
.. The Dow is up only 19% in real (inflation-adjusted) terms since 2000. A 19% increase in 17 years is underwhelming
.. The Fed, like the world’s other central banks, is steadily debasing the currency, in order to create inflation.